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Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Is Qualys Inc (NASDAQ:QLYS) ready to rally soon? Prominent investors are selling. The number of bullish hedge fund bets decreased by 3 lately. Our calculations also showed that QLYS isn't among the 30 most popular stocks among hedge funds. QLYS was in 14 hedge funds' portfolios at the end of the first quarter of 2019. There were 17 hedge funds in our database with QLYS positions at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Let's take a peek at the fresh hedge fund action regarding Qualys Inc (NASDAQ:QLYS).

Hedge fund activity in Qualys Inc (NASDAQ:QLYS)

At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in QLYS over the last 15 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).